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Aetna (AET) is Significantly Reducing Its Participation in Obamacare

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Aetna Inc. has announced that it will stop offering individual Obamacare plans in 11 of the 15 states where it is participating.  Other major insurers who have exited government-run markets include UnitedHealth Group (UNH - Free Report) and Humana (HUM - Free Report) . 

The reason why each of these insurers is retreating from the public individual on-exchange markets is because of the losses incurred which amount to hundreds of millions of dollars annually.  The lack of profitability has lead to many insurers exiting the state-run exchange market. According to a report by Edmund Haislmaier, insurers offering individual state-run health plans have been on a decline, and since 2013, the number of insurers’ public individual plans decreased from 395 to 287.

Aetna is lowering its participation in Affordable Care Act (ACA) individual public exchanges in light of a Q2 pretax loss of $200 million from its individual products.  55% of individual on-exchange memberships are new in 2016, and the company saw individuals who needed high-cost care taking up a larger portion of their on-exchange population.  This has lead to an unbalanced risk pool among policyholders, and Aetna now questions the sustainability of its state-run exchanges.

The US Department of Health and Human Services recently announced that it will seek to find ways to modify the risk adjustment programs in the hope that they will be able to work on making a more sustainable public exchange model.  Aetna is a proponent of public exchanges as a way to help the uninsured, and CEO Mark Bertolini says that he is encouraged by the Department of Health and Human Services’ announcement. 

The four states where plans will continue to be sold on state exchanges include Iowa, Delaware, Nebraska, and Virginia.  Aetna is reducing its public exchange participation from 778 to 242 counties in the 2017 plan year.  For most of the counties where public products were offered in 2016, the company will offer an off-exchange individual product option for 2017.  Aetna’s decision to lower its public on-exchange participation will not affect people who are covered by the insurer this year.  Pay attention to earnings estimate revisions from analysts and whether they move upwards or downwards over the near term.  Aetna stock is currently a Zacks Rank #3 (Hold).

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